GBP/USD – Plunges on Weak UK Manufacturing Data

 GBP/USD is down sharply in Tuesday trading. The pair has shed about a cent, as the pair has dropped to the low-1.51 range in the North American session. The pound took a hit after the release of disappointing UK Manufacturing data earlier on Tuesday. In the US, the ISM Manufacturing PMI continued a string of key US releases that have failed to meet market expectations. US Factory Orders and IBD/TIPP Consumer Optimism both came in very close to their estimates.

In the UK, the pound sagged after a disappointing reading from UK Manufacturing PMI. The key indicator rose slightly from 47.9 points to 48.3 points, but missed the estimate of 48.9 points. Net Lending to Individuals rose sharply to 1.5 billion pounds, well above the forecast of 0.9 billion. M4 Money Supply declined 0.5%, while the estimate stood at 1.1%. Mortgage Approvals fell to 52 thousand, a five-month low. The forecast stood at 54 thousand. In the US, Factory Orders rose nicely to 3.0%, just shy of the estimate of 3.1%. IBD/TIPP Economic Optimism recorded a reading of 46.2 points, almost matching the estimate of 46.1 points. The markets have reacted with a thumbs down to the UK data, as speculation rises that the BOE could increase its Assets Purchases when it holds a policy meeting on Thursday.

The US also has its share of problems, as key releases last week were a big disappointment, with poor data across a range of sectors, including housing and employment. The new week did not start well, as the ISM Manufacturing PMI dropped sharply from 54.2 points to 51.3 points, way below the estimate of 54.2 points. As well, Final Manufacturing PMI came in at 54.6 points, missing the forecast of 55.0 points. If this week continues in a downward trend, we could see a negative reaction from the markets, as concerns rise about the US recovery. The major events for this week include ISM Non-Manufacturing PMI and key employment numbers.

Over in Europe, the markets continue to cast a worried eye at Cyprus. The bailout agreement worth EUR13 billion may have been signed, but the drama and uncertainty in the small island country continue. Capital controls are still in place in Cyprus, as the government takes strict measures in order to head off a run on the banks by nervous deposit holders. Under the agreement, bank deposits under EUR100,000 will be left untouched, but there is confusion and uncertainty as to what will happen to larger accounts, which have been frozen. There is plenty of speculation about what will happen, with rumors that these accounts could get hit with huge taxes of up to 40%. As developments unfold, we could see some sharp reactions from the currency markets. In Italy, the political paralysis continues, and the situation is truly bewildering, even by Italian standards. Coalition talks have made no progress so far, with the anti-establishment Five-Star movement, which won more votes than any other party, showing no flexibility. In desperation, Italian President Napolitano has appointed a panel of 10 experts, including politicians and a central bank official, in order to find some solution. The Italian media has playfully dubbed the panel the “Ten Wise Men”. All humor aside, the panel will have their hands full trying to reach some resolution to the inconclusive election, which has left the Eurozone’s third largest economy in a deep political crisis.

 

GBP/USD for Tuesday, April 2, 2013

Forex Rate Graph 15/1/13

GBP/USD April 2 at 15:00 GMT

1.5128 H: 1.5258 L: 1.5123

 

GBP/USD Technical

S3 S2 S1 R1 R2 R3
1.4880 1.4988 1.5053 1.5138 1.5203 1.5309

 

The pound has dropped sharply in Tuesday trading, and is struggling in the low-1.51 range. On the downside, the pair is receiving support at 1.5053. This line is protecting the psychologically-important 1.50 level. The next support level can be found at 1.4988. On the upside, there is weak resistance at 1.5138. This line could face further pressure from the volatile pair. This is followed by resistance at 1.5203, which saw activity earlier today.    

  • Current range: 1.5053 to 1.5138

 

Further levels in both directions:

  • Below: 1.5053, 1.4988, 1.4880 and 1.4818
  • Above: 1.5138, 1.5203, 1.5309, 1.5392 and 1.5461

 

OANDA’s Open Positions Ratios

The majority of positions in the GBP/USD ratio are long, indicating a bias in trader sentiment towards the pound improving against the US dollar. Currently, this is not reflected in the pair, as the pound has sustained sharp losses. We could see the ratio point to movement towards short positions if the pair’s current downward trend continues. 

The pound is taking it on the chin in Tuesday trading, as the British currency has shed over a cent against the dollar. The markets are very edgy about the prospects about the US economy, as fears of a recession get stronger. As well, there is concern that the BOE could increase QE, which is pound-negative. British Construction PMI will be released early on Wednesday, and if the reading is weak, we could see the pound lose more ground, as the markets are unlikely to be in a forgiving mood.

 

GBP/USD Fundamentals

  • 8:30 British Manufacturing PMI. Estimate 48.9 points. Actual 48.3 points
  • 8:30 British Net Lending to Individuals. Estimate 1.5B. Actual 0.9B
  • 8:30 British M4 Money Supply. Estimate 1.1%. Actual -0.5%
  • 8:30 British Mortgage Approvals. Estimate 54K. Actual 52K
  • 14:00 US Factory Orders. Estimate 3.1%. Actual 3.2%
  • 14:00 US IBD/TIPP Economic Optimism. Estimate 46.1 points. Actual 46.2 points
  • All Day: US Total Vehicle Sales. Estimate 15.3M

 

 *Key releases are highlighted in bold

*All release times are GMT

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.